The Secret’s out – if you want to lower your ediscovery and litigation costs – seek F.R.E. 502 non-waiver orders

Heriot v. Byrne, 2009 WL 742769 (N.D. Ill. March 20, 2009)

Heriot addresses the inadvertent production of privileged materials by an ediscovery vendor. Because the law firm that retained the vendor had taken reasonable steps to review the documents prior to their production, and took prompt steps to rectify the inadvertant disclosure once they learned of it, the court ruled the disclosure was inadvertent and did not result in a waiver attorney-client privilege under Fed. R. Evid. 502(b). The decision also serves as a stark reminder of the care which must be taken in selecting an ediscovery vendor, and the American Bar Association Ethics Opinion addressing a lawyer’s obligations when outsourcing legal and nonlegal services.

However, after reading the court’s analysis of the parties’ Rule 502(b) arguments, I was struck by how unnecessary it all was. I tried to imagine the number of hours the district court spent reviewing the documents which had been submitted for an in camera inspection, reviewing the parties’ briefs, and then drafting its opinion resolving the Rule 502(b) issues that were presented. I thought of the hours, and literally the thousands of dollars that were wasted litigating the inadvertent waiver issue. Much of that time, money and effort could have been avoided had the parties simply entered into a non-waiver order under Fed. R. Evid. 502(d).

So, before stepping off the soap box and getting back to Heriot, let us provide a practical suggestion to lower your ediscovery and litigation costs – enter into non-waiver orders under Fed. R. Evid. 502(d). The Note to Rule 502(d) explains that once a non-waiver order is entered in a federal proceeding, “its terms are enforceable against non-parties in any federal or state proceeding.” That Note further explains the agreement of the parties is not a condition to the entry of, or the enforceability of a non-waiver order. As indicated in one of our prior posts, Rule 502 non-waiver orders are the gold standard to follow when seeking protection against the inadvertent waiver of privilege.

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A practical tip for keyword searching

Wm. A. Gross Constr. Assocs. v. American Mfrs. Mutual Ins. Co., 2009 WL 724954 (S.D.N.Y. March 19, 2009).

When the opening line of an ediscovery decision is: “This Opinion should serve as a wake-up call to the Bar in the District,” visions of another Qualcomn blowup immediately come to mind. When you realize the decision is about “the need for careful thought, quality control testing, and cooperation with opposing counsel in designing search terms or key words,” you guess this is another decision addressing the inadvertent waiver of privilege. Because ediscovery is easier to get wrong than it is to get it right, lawyers – being the cynical lot we are – immediately think the worst.

 Well, luckily for those involved in Gross Construction Associates, the decision’s opening salvo was a reflection of the judge’s frustration over having to design a keyword search when the parties could not agree on the terms to employ. While much of the decision retraces the same ground covered by the Victor Stanley and Equity Analytics decisions, the court does provide several interesting insights, and one practical tip to help prevent keyword searches from disintegrating into a game of Scrabble.

The decision arises out of a construction defects and delay claim involving the development of the Bronx County Hall of Justice. The Dormitory Authority of the State of New York (“DASNY”) was the “owner,” and employed Hill International as its construction manager on the project. Hill was not a party to the lawsuit.

DASNY agreed to produce Hill’s project-related documents and ESI to the other parties in the litigation. The issue confronting counsel, and the court, however, was how to segregate Hill’s project-related e-mails from those that were unrelated. Thus, the parties proposed to use the use of keyword searches to filter out the unrelated e-mails.

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The road paved with good intentions – A pure heart and an open checkbook

See, In re Quintus Corp., 353 B.R. 77 (Bankr. D. Del. 2006)

A valid explanation is not enough.

Bankruptcy Court can be a dangerous place. What you knew or should have known can often be viewed through the 20/20 vision of hindsight. One example of this can be found in a decision out of Delaware.

A software vendor filed for protection under Chapter 11 of the Bankruptcy Code. While in Chapter 11, the debtor sold the majority of its assets to a competitor in return for cash, a note, and the asset-purchaser’s assumption of certain of the debtor’s liabilities. Nine months later, the case was converted to Chapter 7, and a Trustee was appointed to oversee the liquidation of the debtor.

Not long after the case was converted to Chapter 7, the asset-purchaser failed to make certain payments as required under the terms of its agreement with the debtor, and the Trustee brought suit. Discovery was commenced and cross-motions for summary judgment were filed.

The Trustee sought judgment in part, based on the purchaser’s destruction of certain of the debtor’s books and records, which it had purchased, but which it had agreed to preserve as part of the terms of the purchase.

The purchaser responded that it had deleted those portions of the debtor’s books and records from its computer servers prior to any of the acts or omissions which the Trustee alleged as the basis of his suit, and explained that the electronic information at issue was destroyed prior to the commencement of the adversary proceeding. Finally, the defendant argued that the electronic information was not intentionally deleted to thwart the Trustee or anyone else but, was instead deleted so as to free up memory on the computer system.

The Bankruptcy Judge was unconvinced.

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Clawback and quick peek agreements are no longer considered the Gold Standard for protecting against the inadvertent waiver of privilege.

On a recent flight, I read the February/April, 2009 edition of Litigation Support Today magazine. Under the banner of Best Practices, was an article: “Slashing Ediscovery Costs in a Digital Universe.” One of the author’s recommendations was to negotiate a “quick peek” agreement with opposing counsel. However, care must always be exercised with quick peek and clawback agreements.

Fed. R. Evid. 502(e) confirms that a clawback or quick peek agreement only binds the parties to the agreement “unless it is incorporated into a court order.” Clawback and quick peek agreements provide no protection as to third parties. Thus, while you may avoid a claim of waiver as to information inadvertently produced to a party who signed such an agreement, other parties in that litigation who are adverse to you, and who were not signatories to your agreement, as well as parties in other cases, can claim that your quick peek agreement is not enforceable against them. They will argue that allowing your opponent to potentially view privileged documents without taking any precautions to ensure that privileged information was not reviewed by opposing counsel (other than simply entering into the quick peek agreement) waived attorney-client privilege and the work-production protection as to them. For further insight into the use of quick peek and clawback agreements, see Hopson v. City of Baltimore, 232 F.R.D. 228, 244 (D.Md. 2005).

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If John Constantine had been a lawyer, these sanctions would be his vision of ediscovery hell

Bray & Gillespie Management LLC v. Lexington Ins. Co., 2009 WL 546429 (M.D. Fla., March 4, 2009)

In the movie Constantine, Keanu Reeves plays an occult detective with the ability to detect demonic beings on earth, and to see into hell. Had his character been a lawyer rather than an occult detective, he would simply have to read the Bray & Gillespie decision to see what a vision of ediscovery hell looks like.

The Bray & Gillespie decision addressed some basic ediscovery mistakes involving a request for production of ESI in its native state with its accompanying metadata. However, those mistakes were compounded by what the Magistrate Judge described as material misrepresentations and omissions by counsel for the party producing that data. The decision also stands as a stark reminder that a supervising partner, and his firm can be held liable for the ediscovery snafus of their local counsel and predecessor counsel.

The court recognized that any motion for sanctions, even one which names only the party, puts both the party and its attorney on notice that the court may access sanctions against either or both of them, absent a showing of substantial justification for the conduct at issue. In Bray & Gillespie, the court determined that it was not appropriate to require the client to pay for the sanctions resulting from the decisions made by its outside counsel. Rather, the court sanctioned outside counsel and his firm, and also issued a Rule to Show Cause why another attorney from that firm should also not be personally sanctioned for his conduct in the case. Even more chilling is the fact that the Magistrate Judge indicated that she was willing to entertain additional sanctions, including a request that the court dismiss the case, if the data she ordered produced contained more metadata than what the sanctioned attorneys offered to produce in discovery.

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Email cc’d to non-lawyer forfeited attorney-client privilege, but work product doctrine saved the day

Schanfield v. Sojitz Corp. of America, 2009 WL 577659 (S.D.N.Y. March 6, 2009).

Sojitz Corporation fired its employee Schanfield. Six months later, Schanfield sued for wrongful termination. As many litigants do prior to filing suit, Schanfield sought the advice – via email – of two attorneys in his family. These communications discussed the facts of the case, underlying strategy, and thoughts on retaining counsel. Schanfield copied his non-lawyer sister on these messages.

Schanfield withheld these emails from production. Sojits moved to compel. Schanfield argued that the messages were protected by the attorney-client privilege because they were “confidential and explicitly for the purpose of procuring legal advice about his claims in [the] litigation and the retention of counsel.”

The court found that by copying his non-lawyer sister on these communications, Schanfield forfeited the attorney-client privilege. However, the court also found that the emails were protected by the work product doctrine. The messages were “clearly prepared in anticipation of litigation,” and by sending them to his close relatives, Schanfield did not significantly increase the likelihood that Sojitz would obtain the information. Absent a showing of substantial need for the messages, the court denied Sojitz’s motion to compel.

The obvious lesson to be learned from the case is that one must use discretion in deciding who to copy on email messages. Lawyers are expected to understand the contours of the attorney-client privilege and avoid unnecessary cc-ing. But prudent counsel will instruct and remind his or her clients of how easy the protection of the attorney-client privilege can be destroyed, as this case demonstrates. This is an issue which should be included in any corporate email risk management training or program.

Buyer beware: suspicious timing warrants adverse inference instruction for spoliation of electronic data, and a punitive damage claim based on that inference

Smith v. Slifer Smith & Frampton/Vail Associates Real Estate, LLC, 2009 WL 482603 (D. Colo., Feb. 25, 2009)

A real estate broker and the brokerage firm he worked for were retained by the plaintiffs to sell a parcel of property in Vail, Colorado. The property was sold for $2,846,250, based on the defendants’ recommendation. Less than three months later, the same property was resold by the buyer in the first transaction for $7,200,000, with the defendants again serving as the broker for that transaction. Plaintiffs subsequently filed suit claiming negligent misrepresentation, fraud, concealment, and that the defendants had breached their statutory duties as a transaction broker.

In discovery, plaintiffs sought production of emails and other electronic documents on the brokerage firm’s servers, and on the broker’s work and home computers. A forensic examination of the broker’s home computer revealed that a secure deletion (wiping) software called “Anti Tracks” had been downloaded from the Internet, and used on the broker’s home computer resulting in the loss of data from thousands of files and folders. A similar examination of the broker’s computer at work revealed that information appeared to have been deleted from that computer as well, and that the computer’s hard drive had been reformatted. Plaintiff’s forensic computer expert opined that the process to reformat the drive was too involved and complicated to be unintentional.

The district court acknowledged that there was no smoking gun establishing who caused the data loss, nor could anyone pinpoint exactly what information had been deleted. However, it was apparent that the defendants had failed to properly preserve potentially relevant information. In the court’s view, the “highly-suspect timing” of the use of the wiping software on the defendant’s home computer and the reformatting of the hard drive of his work computer was sufficient to establish that evidence had been destroyed in bad faith to prevent disclosure of relevant information from those computers. Therefore, the court ordered that an adverse inference instruction be issued, and allowed the plaintiffs to add a punitive damages claim based on the adverse inference. The court further awarded plaintiffs their fees and costs, including expert costs associated with plaintiffs’ sanctions motion, and related discovery expenses incurred as a result of the defendants’ actions.

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OCR cost shifting rejected

Proctor & Gamble Co. v. S.C. Johnson & Son, Inc., 2009 WL 440543 (E.D. Tex., Feb. 19, 2009)

Given today’s economic climate, shifting the costs of electronic discovery is a strategy that should be considered whenever possible. In Proctor & Gamble, the district court rejected the defendant’s attempt to shift the costs of applying optical character recognition (“OCR”) to documents it had agreed to produce in a tagged image file format (“TIFF”). The application of OCR to the TIFF images would make the imaged documents electronically searchable.

While the district court recognized that the application of OCR to the imaged documents was “not absolutely necessary to [the] litigation,” it rejected the defendant’s attempt to shift the cost of OCR processing because the defendant failed to provide any support for its cost estimate, and no valid legal argument to support its claim that the cost burden should be shifted. The defendant advised the court that it did not intend to use the OCR process, and argued that it should not be forced to bear the added OCR expense solely for the plaintiff’s convenience. That argument failed to carry the day in Proctor & Gamble.

Any cost-shifting strategy requires careful advanced planning, and a thorough knowledge of the client’s information systems. While the district court’s ruling in Proctor & Gamble appears relatively straightforward, there are a number of issues that are relevant to any cost-shifting strategy that must be carefully analyzed before a party should even begin to evaluate cost-shifting factors outlined in Zubulake, which was the focus of the district court’s opinion in Proctor & Gamble.

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